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Carr-Madan Formula

Carr-Madan Formula

AboutBooks

In financial mathematics, the Carr–Madan formula of Peter Carr and Dilip B. Madan[1] shows that the analytical solution of the European option price can be obtained once the explicit form of the characteristic function of , where is the price of the underlying asset at time , is available.[2] This analytical solution is in the form of the Fourier transform, which then allows for the fast Fourier transform to be employed to numerically compute option values and Greeks in an efficient manner.

References

  1. ^ "Dilip B. Madan | Maryland Smith". www.rhsmith.umd.edu. Retrieved 2023-07-30.
  2. ^ Carr, Peter; Madan, Dilip B. (1999). "Option valuation using the fast Fourier transform". Journal of Computational Finance. 2 (4): 61–73. CiteSeerX 10.1.1.348.4044. doi:10.21314/JCF.1999.043.

Further reading

Financial Modelling: Theory, Implementation and Practice with MATLAB Source

Financial Modelling: Theory, Implementation and Practice with MATLAB Source:
Daniel Wetterau - Jörg Kienitz
A unique contribution to the application of quantitative techniques to financial problems and programming using Matlab.


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